Institute of Forensic Accountants of Pakistan

Why Forensic Accountancy (FA)?

The recent accounting scandals have induced a crisis of confidence in financial reporting practice, and effectiveness of the CG mechanisms. Undoubtedly, a qualified, trained and mature FA professional can prove to be a valuable asset to the corporate-sector, and gradually help to improve their CG system. The FA’s, being professional members of the CG and Audit Committees, can play a far greater role in coordinating company efforts to achieve a cohesive policy of ethical behavior within an organization. By helping companies to detect and prevent fraud, create a ‘positive’ work environment, establish ‘effective’ lines of communication, and be vigilant as a corporate ‘watchdog’, the FA’s role can gradually evolve into a key component in the CG system.

In modern, technology-based era, most of the criminals behind fraud use sophisticated technology and accounting tricks to commit complex frauds. To facilitate the preservation, collection, analysis and documentation of evidence, FA’s can use specialized software and computer hardware. The increasing rate of computer-based financial crime has created a huge demand for the skills and services provided by FA’s. We recommend that extensible Business Reporting Language (XBRL) should be integrated across the accounting curriculum. Recently, Corporate Filing and Dissemination System (CFDS) have implications for the totality of the accounting curriculum and pedagogy. A program for the integration of them across a typical accounting curriculum should be developed soon.

Growing cybercrimes, failure of regulators to track the security scams, series of co-operative banks bursting–all are pinpointing the need of forensic accounting/forensic auditing, irrespective of whether we understand the need or not. Forensic accounting/forensic auditing seeks to uncover the what, why and how behind the computation and reporting of figures. The aim is to ascertain or confirm the substance of those purported transactions. In the Pakistani context the Forensic Accountants/Forensic Auditors (FAs) are the most required in the wake of the growing frauds. The law enforcement officers are the experts of analyzing the fingerprints and the Narcotics but what about the digital evidence analysis.

Why there is the need for Forensic Accountants/Forensic Auditors (FAs)?

1. Forensic Accounting/Forensic Auditing is the specialty practice area that describes engagements which result from actual or anticipated frauds, disputes or litigations.  Forensic Accounting /Forensic Auditing, Fraud Detection & Prevention specialization is in increasing demand considering increasing incidents of cyber-crimes and frauds. It is the practice of utilizing accounting, auditing, CAATs/ Data Mining Tools, and investigative skills to detect frauds/ mistakes. The Government bodies, PSE’s, Insurance sector, Banks, Investigating agencies as well as many medium-sized and boutique firms have specialist forensic accounting/forensic auditing departments engaging Forensic Accountants/Forensic Auditors (FAs).

2. According to ‘2018 Report to the nation’ by Association of Certified Fraud Examiner (ACFE), there were 2690 cases of occupational fraud from 125 countries resulting into loss of more than $7 billion which cause a huge demand for those who can identify and put up relevant control to prevent such mishap. Out of these 72 cases were from Pakistan and India. Against a backdrop of tough economic conditions and growing corporate governance, demand for Forensic Accountants/Forensic Auditors (FAs) is increasing. Practitioners believe that the demand for the services of Forensic Accountants/Forensic Auditors (FAs) is growing because of the tightening economic conditions and the increasing scrutiny of how companies are governed. In such circumstances, there is heightened sensitivity to fraud, and that translates into more efforts to detect and prevent it, as well as to take legal action against the wrongdoers.

3. The growing number of regulator and the administrative agencies will demand the services in the nature of forensic accounting and forensic auditing practice. Forensic Accountants/Forensic Auditors (FAs) are going to find themselves more involved in what is essentially a type of forensic practice. The changing nature of the Accounting and Auditing & assurance standards also confirms this. Nearly 40 per cent of the top 100 American accounting firms are expanding their forensics and fraud services, according to Accounting Today.

4. Forensic accounting  refers to a strategic approach whereby financial data and non-financial information are gathered, monitored, studied and analyzed for fraud-prevention purposes. While the standard accountant focuses on balancing books and maintaining records, the Forensic Accountant/Forensic Auditor (FA) intensively investigates financial activity for evidence of misconduct. Business accounts can be extraordinarily complex, making it difficult or even impossible for problems to be detected without thorough investigation. To overlook or ignore
evidence of monetary misgivings can lead to devastating legal and financial consequences. It is the job of the Forensic Accountant/Forensic Auditor (FA) to look for, prevent and pre-empt
fraudulent activity, for the protection of the respective business or organization.

5. The digital era has made it easier than ever before for criminals to tamper with business accounts and generally defraud others. Of the 500,000+ new businesses that are established every year, the overwhelming majority rely on computers and the internet. Each time security experts intensify their efforts to minimize external risks, hackers push back with equal force. Research has also shown that internal ‘white collar’ crime is also a growing problem, contributing to more than $1 trillion in combined losses every year. The contemporary fraudster
has a tendency to be highly capable in covering their tracks and leaving little to no evidence behind. Conventional accountants and business managers alike simply do not have the knowledge, the specialist skills or the available time to carry out comprehensive financial audits and investigations.

6. By taking a proactive approach to accountancy, a business is able to safeguard itself from both devastating losses and dire legal consequences. Forensic Accountants/Forensic Auditors (FAs) investigate financial activities and records in comprehensive detail, searching for any evidence whatsoever of fraudulent or unusual activity. Where detected, the required evidence is gathered, collated and ultimately presented in a clear and concise manner–often in a court setting.

7. Forensic Accounting/Forensic Auditing is a highly-specialist field of growing relevance and value to the global business community. Experience builds professional expertise, but there is
also a great deal of theory to master before stepping into a working accountancy role. Studying Forensic Accounting/Forensic Auditing at-length and in-depth is crucial for anyone interested in joining this dynamic and rewarding profession. By exploring the investigative process, the psychology of the modern fraudster and how to effectively build a case, you prime yourself for the next crucial step up the career ladder.

8. Forensic Accountants/Forensic Auditors (FAs) can be used for investigating many different crimes related to financial fraud, such as sales fraud, inventory fraud, marketing fraud and securities fraud. They are commonly used for help in investigating financial fraud committed by employees, clients or customers. Litigation support services are also provided to legal
professionals as evidence to support or refute claims as needed.

9. We live in a new world that deals with the issues of financial collapses, economic downturns, growing occurrences of fraud, a litigious society and an expectation of quick results from peers, clients–and even friends and family. Attorneys have benefited from the business that this new world has generated, as well as the increase in government and regulatory scrutiny.

10. Attorneys know that there is a value proposition to be presented to a client when working in tandem with a Forensic Accountant/Forensic Auditor (FA). Together, the attorney and forensic accountant can coordinate research needs and interpret the details uncovered. The combination of attorney and Forensic Accountant/Forensic Auditor (FA) will help analyze complicated financial data, and will persuasively and effectively communicate results with a high degree of credibility. A maximum amount of team work is necessary for the just and proper results for the client whether it is in the advisory area, in a pre-litigation or a litigation scenario. Litigation often involves multiple, complex accounting and legal issues that overlap and intertwine. So, in this overly convoluted world, a client can maximize benefits, and minimize downsides, by retaining both an attorney and Forensic Accountant/Forensic Auditor (FA).

11. An in-depth knowledge of financial statements and the ability to critically analyze them. These skills help FA’s to uncover abnormal patterns in accounting information and recognize their source. A thorough understanding of fraud schemes, including but not limited to asset misappropriations, money laundering, bribery, and corruption. The ability to comprehend the internal control systems of corporations, and to set up a control system that assesses risks, achieves management objectives, inform employees of their control responsibilities, and monitors the quality of the program so that corrections and changes can be made.

12. Proficiency in computer and knowledge of network systems. These skills help FA’s to conduct investigations in the area of e-banking and computerized accounting systems. Knowledge of psychology in order to understand the impulses behind criminal behavior and to set up fraud prevention programs that motivate and encourage employees. Interpersonal and communication skills, which aid in disseminating information about the company’s ethical policies and help FA’s to conduct interviews and obtain crucially needed information. Thorough knowledge of company’s governance policies and the laws that regulate these policies and Command of criminal and civil law, as well as, of the legal system and court procedures.

Demand for Forensic Accountants/Forensic Auditors (FAs) is growing in Pakistan

Against a backdrop of tough economic conditions and growing corporate governance, demand for Forensic Accountants/Forensic Auditors (FAs) is increasing, and Pakistan is leading the way. When the going gets tough, the forensics get going. Practitioners believe that the demand for the services of Forensic Accountants/Forensic Auditors (FAs) is growing because of the
tightening economic conditions and the increasing scrutiny of how companies are governed. In such circumstances, there is heightened sensitivity to fraud, and that translates into more efforts to detect and prevent it, as well as to take legal action against the wrongdoers. The garden variety work done by accountants and auditors is often inadequate in this area because the scope and nature of that work is normally not designed to find something that has been artfully concealed in today’s complicated business operations. This is a job that calls for specialist experience and skills. In many instances, a Forensic Accountant/Forensic Auditor (FA) is a detective, an examiner and an expert witness rolled into one. While just about everybody agrees that forensic accounting is a specialized area of accountancy education, if you ask 10 practitioners to define it, you are likely to get 10 different ways of looking at it. That just shows how much a Forensic Accountant/Forensic Auditor (FA) may be required to do.

Simply explained, forensic accounting seeks to uncover the what, why and how behind the computation and reporting of figures. The aim is to ascertain or confirm the substance of those purported transactions. A Forensic Accountant/Forensic Auditor (FA) as a financial investigator with specialized multidiscipline skills. A Forensic Accountant/Forensic Auditor (FA) must be knowledgeable about business processes and fraud risk management because they are frequently brought in to help companies prevent and detect fraud and misconduct. A more appropriate term is “forensic accounting professional” because he/she not only investigates fraud and misconduct but also has the skills to help to mitigate the risk of fraud in organizations. Forensic Accounting encompasses a wide range of services–everything from traditional investigations of ‘cooking the books’ to predictive data analytics and compliance consulting.

Therefore, it goes well beyond financial investigations. ‘Rather, we perceive the unifying concept to be the application of the forensic “mindset” to help solve complex client issues, including quantification of economic damages and investigating complicated accounting schemes. More often than not, companies turn to forensic accounting only when things have already gone wrong. Forensic Accountants/Forensic Auditors (FAs) are usually hired after fraud has been discovered. ‘Their appointments are typically aimed at enhancing the quality of evidence to support an effective civil or criminal action. More companies invest in fraud prevention and detection programs, including getting the help of forensic accounting professionals. Boards of directors should realize that fraud can impact their organizations and thus it is a business imperative for them to take preventive measures.

More so, there are available analytic tools that can be leveraged in detecting any red flags of fraud within their organizations. In short, they should take a proactive approach instead of waiting until they are hit by fraud incidences, which are often very costly, both financially and to their reputation. It is almost certainly less expensive to prevent fraud than to deal with its after-effects. Companies being more open to conversations about the benefits of having a fraud risk assessment or proper compliance programs in place.

In Pakistan, that may happen sooner rather than later because there are several factors at play that will encourage corporations to seek the services of Forensic Accountants/Forensic Auditors (FAs). A pivotal development in Pakistan is the government’s plan to make companies liable if employees commit bribery or other forms of corruption. The Institute of Forensic Accountants of Pakistan (IFAP) believes that this move will prod companies into establishing stronger governance and control mechanisms. The Institute of Forensic Accountants of Pakistan (IFAP) also highlights the regulators push to improve corporate governance in Pakistan, saying that this supplies the impetus for corporations to exercise greater corporate responsibility, and to improve their risk management and internal control frameworks.

Just as business is becoming more sophisticated, so, too, is fraud. Therefore, companies need assistance in dealing with this mounting challenge. The Institute of Forensic Accountants of Pakistan (IFAP) points out that dispute advisory is a growth area for forensic accounting professionals. This involves providing expertise in civil disputes and giving evidence in court and arbitration proceedings. The global economy also has a role. Given that instability and lethargy seem to be the order of the day, companies and individuals will have to deal with more financial pressures, and this tends to lead to an increase in fraud and corruption.

All this means that now may be a good time to become a Forensic Accountant/Forensic Auditor (FA). The key element of forensic accounting is the wide variety of assignments one can get. Each assignment is unique, incredibly challenging and rewarding. Asked for the attributes that make a good Forensic Accountant/Forensic Auditor (FA), practitioners come up with a long list, thus reflecting the breadth of the role. Among the preferred qualities are technical competence, creativity, sound ethics and morality, communication skills, street smarts, a probing mind, attention to detail, ability to connect the dots, and perseverance. Forensic Accounting/Forensic Auditing is an intriguing area, and for people who feel compelled to help solve puzzles, this is the field of choice.

Forensic Accounting and Forensic Auditing as a subject has high demand

Forensic Accountants/Forensic Auditors (FAs) are in great demand in Pakistan and the scope of forensic accounting and forensic auditing services is going to increase as the reforms in Pakistani financial sector continues. The Bureau of Labor Statistics (BLS) predicts 13% job growth for accountants and auditors by 2022. The growth of all forensic accounting and forensic auditing jobs should correspond with this rate, if not exceed it due increasing financial regulations, with some estimates predicting a 20% growth in demand for investigative auditors. Courses, particularly pertaining to forensic accounting and forensic auditing, are now available in Pakistan. They mainly cater to auditing segments. Forensic accounting and forensic auditing is a term which basically used in corporate sector for corporate fraud. If you thought only a CA/CPA/CMA Program will help you become an auditor, looking into a company’s books both from the financial and the forensic angle, you might be wrong. Forensic accounting and forensic auditing introduced fast in Europe in 1970 later it spared to the USA in 1980 and now in Pakistan to control corporate fraud.

Institution such as The Institute of Forensic Accountants of Pakistan (IFAP) provide courses since October 2009 on forensic accounting and forensic auditing that will have individuals act as watchdogs in Pakistani companies. Forensic Accountants/Forensic Auditors (FAs) investigate fraudulent activities; uncover money laundering and find missing assets through a combination of investigative techniques and accountancy skills. As an investigation may lead to judicial proceedings, Forensic Accountants/Forensic Auditors (FAs) need to work closely with and sometimes take instruction from legal teams and organizations. There are a lot of challenges that the companies would face when it comes to managing the fraud risks. According to some reports some of the common challenges for the companies are inability to perform in effective fraud risk assessment and ineffective segregation of duties .Apart from this other risks include limited monitoring of the third parties and ability to demonstrate ethical behavior.

Five Components of the Forensic Accountant’s/Forensic Auditor’s (FA’s) Role

1. Coming up with the case material. The Forensic Accountant/Forensic Auditor (FA) will know which records and materials could be useful in assessing the entire financial situation-there could be more than one way that fraud was being perpetrated.

2. Planning the case strategy. The cost of presenting a case may outweigh the benefit of the settlement. As a clear idea of all of the losses involved emerges before the case is in motion, including loss of potential future income, it can be established whether the firm should proceed with the case and how.

3. Working with employees, management and others. Due to their experience handling workplace fraud, Forensic Accountants/Forensic Auditors (FAs) will know the questions to ask, and the signs to look for. As workplace fraud is typically conducted by a lone employee, understanding the human nature and thought processes of a fraudster can help uncover additional clues.

4. Conducting an internal investigation. With their accounting background, as well as specific studies in data management and electronic discovery, Forensic Accountants/Forensic Auditors (FAs) work together to provide the litigators with information necessary to win a successful settlement.

5. Providing a complete written report. At some point in the fraud case, a written report must be provided by the Forensic Accountant/Forensic Auditor (FA) and the strength of the results based on the work performed has the power to intimate a very strong case. Discouraged by the comprehensive conclusions in the report, the fraudster may be much more likely to prefer to settle the case to discourage negative publicity, have funds to pay what would likely be proven if the case went to trial, or just have the sheer realization and acceptance that they committed fraud and were caught.

Forensic Accounting helping companies fight White-Collar Crimes

Put on guard by the Panama scam and an increase in white collar crimes, the number of Pakistani companies resorting to forensic accounting and forensic auditing has doubled in the last one year. As a majority of corporate fraud cases involve accounting schemes designed to deceive investors and auditors regarding the true financial condition of a company, there has been a 100% increase in the number of companies resorting to forensic accounting and forensic auditing in the last one year.

Forensic accounting/forensic auditing is a branch of accounting that uses
investigative skills to determine the accuracy of a company’s financial statements. It involves gathering, analyzing and documenting financial information to detect misreporting in accounts books. Concerned over corporate frauds, many large Pakistani companies have started hiring Forensic Accountants/Forensic Auditors (FAs) to detect misreporting in books of accounts. For a high growth economy like Pakistan, the risk of perpetration for white-collar crimes is very high. In the wake of the growing number of fraud incidents coming to light both in Pakistan and internationally, more companies are looking towards Forensic Accountants/Forensic Auditors (FAs) to help ensure increased transparency. Corporate scams often result in a blame game as it become very difficult to trace the trail of funds. After the Panama scam, people of repute have become very cautious about joining the boards of companies as independent directors because of their concern regarding their role and responsibilities and legal compliance of the companies. The need for Forensic Accountants/Forensic Auditors (FAs) is prevalent across industries. The current availability of industry specific Forensic Accountants/Forensic Auditors (FAs) is quite low and there exists a gap between demand and supply.

Why IFAP Exists?

The Institute of Forensic Accountants of Pakistan (IFAP) is a registered and recognized pioneering professional Forensic Accounting and Forensic Auditing Institute/body in Pakistan with the objective of promoting, regulating and developing the profession of Forensic Accountants and Forensic Auditors (FAs) in Pakistan. The Institute of Forensic Accountants of Pakistan (IFAP) exists to help you develop the knowledge, skills and experience you need to succeed throughout your FA education and training and in your career. The Institute of Forensic Accountants of Pakistan (IFAP) is a leading forensic accounting body. The FA Qualification is a prestigious qualification. The IFAP qualifying program is the benchmark qualification for forensic accounting and governance professionals. It builds a unique breadth of technical skills that equip you for a varied career at board level, and validates your knowledge with an internationally respected accreditation. The Institute of Forensic Accountants of Pakistan (IFAP) exists principally to assist the country to preserve scarce resources always used for inviting expatriate forensic and investigative for fraud investigation in Pakistan as it were. The Institute of Forensic Accountants of Pakistan (IFAP) will help strengthen the nation’s institutional frameworks thereby bringing us at par with other developed countries in line with global standards and competitiveness. It will also stimulate public confidence and enhance transparency and accountability in our economic system.

The Institute of Forensic Accountants of Pakistan (IFAP) is anti-fraud body saddled with the responsibility of providing skill to relevant professionals in the use of science and technology for prevention, detection and investigation of fraud, while also putting in place mechanisms to prevent future occurrence. The Institute of Forensic Accountants of Pakistan (IFAP) has expressed worry that the Pakistani Government has lost billions of rupees in the last few years to fraud and cybercrime, saying there’s a need to rise to the responsibilities as professionals in the country to ensure the needful is done to rescue the Pakistani economy from collapse. The Institute of Forensic Accountants of Pakistan (IFAP) said fraudsters now deploy sophisticated digital technologies to carry out fraud, adding that the Pakistani system requires a forensic and investigative auditing knowledge on the use of science and technology to prevent and detect fraud. We (IFAP) are coming outside theory now to look at how the menace of fraud and corruption can be tackled in the country and find ways through which we can suggest to our members, which will now be put into the operating laws of the institution. We (IFAP) are familiar with how to source information in the country. We are not new, there are formal and informal ways, and we are ready to do that. The Institute of Forensic Accountants of Pakistan (IFAP) says the establishment of forensic and investigative auditing practice in Pakistan will help the country eliminate all opportunities available for financial and white collar crimes/frauds. Global best practice examples today indicates a gradual bifurcation between core accounting bodies and emerging forensic and investigative bodies. For instance in most Commonwealth jurisdictions such as Canada and India, forensic and investigative auditing exists as an independent profession distinct from the existing accounting bodies while in the United States of America (USA), following the enactment of the Sarbanes–Oxley Act of 2002 in response to the multi-billion dollar accounting scandals at Enron and WorldCom, emphasis is now placed on the need for independence, objectivity and professional skepticism on the part of forensic and investigative auditors.

Forensic and Investigative Audit is about prevention, detection and investigation and fraud using forensic technology and global best practices, but Accounting Bodies is all about compliance and assurance audit and not fraud investigation. Forensic and investigative audit work starts where traditional auditors work stopped. Professional Accountants prepare the book of account, audit the same book prepared by them and also want to be the same people to carry out forensic and fraud investigation of the same book.

In this 21st century, we cannot afford to remain analogue when the rest of the world had gone digital. Pakistan is bringing expatriates to come and audit our accounts when we have qualified forensic and investigative auditors to do the same job. In spite of all the monies we are losing, we lose more inviting expatriates. Pakistanis are doing better than these expatriates. We cannot continue to look outside without bequeathing lasting legacy for our children. From Enron, WorldCom, Satyam and Panama, it appears that corporate accounting fraud is a major problem that is increasing both in its frequency and severity. Research evidence has shown that growing number of frauds have undermined the integrity of financial reports, contributed to substantial economic losses, and eroded investors’ confidence regarding the usefulness and reliability of financial statements. The increasing rate of white-collar crimes demands stiff penalties, exemplary punishments, and effective enforcement of law with the right spirit.

We are the first line of defense against fraud. We are the beat cops not just checking boxes, but actually conducting surveillance, and constantly scanning the horizon for irregularities. We need to keep being proactive. Keep your independence. Keep asking the tough questions. Keep raising the red flags. When you think about it, conducting an ethical audit of a company is just as vital as arresting a corrupt CEO. Forensic accounting and forensic auditing combines legalities alongside the techniques of propriety (VFM audit), regularity, investigative, and financial audits. The main aim is to find out whether or not true business value has been reflected in the financial statements and whether any fraud has taken place.

Forensic Accounting Concepts and the Need for Skills

Forensic accounting is not a complicated concept; it is essentially litigation support involving accounting. The application of forensic accounting techniques is also fairly straightforward. Forensic Accountants (FAs) apply their skills to legal cases to answer questions regarding damages, generally with an economic bearing, or where there is a concern expressed by a company potentially experiencing fraud or suffering from deficient internal controls. Forensic accounting skills are also useful in assisting the audit team with fraud-risk assessments, where it is vital to know how to ask probative questions in a non-threatening manner. Digital forensics is a fast-developing subspecialty within forensic accounting, as today’s complex fraud schemes sometimes require digging through very large databases to detect patterns of fraud and expose efforts to conceal it—a basic component of the fraud triangle. In this regard, it is important for a Forensic Accountant (FA) to appreciate that the fraudster is just as smart as the investigator.

Thus, a Forensic Accountant (FA) becomes part detective, uncovering evidence to prove the existence of a crime. In civil cases, Forensic Accountants (FAs) attempt to compile sufficient evidence of fraud and data manipulation to develop a defensible case for the recovery of damages. Forensic training helps professionals build interviewing skills when speaking with witnesses. Clues to look for include body language, speech, and conflicting responses. Skilled interviewers learn how to interpret a witness’s comments and effectively probe for helpful information. These are some of the values placed on attainment of FA Membership/Certification of The Institute of Forensic Accountants of Pakistan (IFAP). In litigation support services, the use of forensic accounting techniques helps a professional address certain questions. One example is the calculation of lost net profits, where the objective is to analyze the company’s historic financial performance and evaluate its economic future. Such evaluation includes analysis of the industry at present and in the future in order to determine a reasonable basis for computing the lost future net sales as saved costs. Using general accounting skills, Forensic Accountants (FAs) dive deeper into the details to consider multiple factors, such as whether or not the injured party has, or could have, mitigated its own damages in part or in full. Being aware of the many variables encountered in a damages case, the model selected should be one that will withstand challenges by the defense. Thus, the pressures shouldered by Forensic Accountants (FAs) are great, but the benefits are commensurately rewarding. Ultimately, becoming a qualified expert witness able to testify in court, arbitration, or mediation can lead to career advancement. This is especially true when a forensic specialist becomes highly knowledgeable in one or more specific industries. Having some knowledge and skill in forensics aids FAs in serving their clients. For example, consider a company that needs an overview of its internal control system. In such a case, being aware of fraud risk empowers a FA with forensic knowledge to detect and help improve deficient internal controls.

Being available for forensic assignments in a specialty area enables a forensic specialist to promote himself as having interest in career growth and a specialized breadth of knowledge. Imagine the enhanced value of a baseball player able to play all positions in the infield, as opposed to just second base; such utility is invaluable to the team. The same analogy applies to accounting firms; multiple capacities lead to increased recognition.

FAs who gain knowledge of forensic accounting through reading, specialized continuing professional education, and hopefully hands-on client experience, will be more prepared to market their skills and add value to their client engagement teams. Earning the FA designation is a fine start, but the road to success is paved with other achievements—forensic knowledge being one of them.